YST terminates 2.9 billion overseas acquisition of photovoltaic assets, chairman "hands over" and actual controller plans to change

In November 2017, Eastar, a leading company in the field of domestic photovoltaic inverters and other equipment, disclosed a major asset purchase report, intending to acquire 100% of the equity of Ningbo Yize for 2.9 billion yuan in cash. The latter's core assets are two companies located in Vietnam - Vietnam Photovoltaic and Vietnam Battery, which are mainly engaged in solar panels and solar cell products respectively.

This merger was approved at the shareholders' meeting in December 2017. At the end of 2018, the authorization period of the shareholders' meeting was about to expire, but the restructuring was still in the process of raising funds, so the company held the first extraordinary shareholders' meeting in 2019 in early 2019, extending the validity period of this major asset restructuring by one year.

But just as the market was expecting the company to push forward the restructuring in 2019, on the evening of March 24, YST suddenly issued an announcement saying that it would terminate this major asset restructuring.

Funding pressure may be the main reason

In the announcement, YST stated that during the planning of this major asset reorganization, macroeconomic environmental factors such as large fluctuations in the secondary market and deleveraging have created great uncertainty for this major asset reorganization. The external environment faced by the company and the counterparty has changed to a certain extent. Both parties agree that it is not appropriate to continue to promote major asset reorganization under the current securities market and industry environment.

At the same time, based on the actual situation and the company's continued focus on smart cities, big data, and smart energy, YST has made efforts in the operation of data centers, energy storage, and charging piles, and has systematically promoted the construction of scientific and technological innovation capabilities and enhanced the company's development momentum. After careful study, it has decided to terminate this major asset reorganization.

Securities Times e-company reporter noticed that this major asset restructuring was eventually shelved after more than a year of planning, and financial pressure may have been the main reason.

When the 2017 major asset restructuring plan was just released, YST said about the source of the 2.9 billion acquisition funds: "At this stage, the company is negotiating with several banks on the loan for this transaction. At present, the company has had in-depth contact with a bank, which has expressed a clear willingness to cooperate. The company has completed the project internally and started the approval process. It is expected that the loan will be completed in the future."

It can be seen that the main source of funds for this acquisition is bank loans.

However, with the continuation of the domestic financial "deleveraging" policy in 2018, banks have tightened their funding significantly, which is obviously unfavorable for YST, which needs to rely on a large amount of funds for overseas mergers and acquisitions. At the end of 2018, it was still raising funds, so it had to extend the validity period of the major asset restructuring by one year.

The financial pressure not only impacted overseas mergers and acquisitions, but also affected YST itself. From November 2017, when the company announced a major asset restructuring, to the end of 2018, YST's stock price had fallen by more than 50%.

As the stock price plummeted, the risk of equity pledge of YST's controlling shareholder also began to increase. In November 2017, the pledge rate of YST's controlling shareholder Yangzhou Dongfang Group was still 55.58%, but by mid-March 2019, when the company disclosed the latest pledge announcement, Yangzhou Dongfang Group had pledged 80.56% of its shares.

In October 2018, Dongguan, where YST was registered, announced the establishment of a listed Dongguan enterprise development investment fund to solve the equity pledge risks of enterprises in Dongguan. It is reported that YST was among the first batch of enterprises to receive assistance.

In December 2018, YST announced that due to financing needs, the company plans to sign a "Equity Income Rights Transfer and Repurchase Contract" with Dongguan Trust, intending to transfer the company's 51% equity income rights to its wholly-owned subsidiary Power System to Dongguan Trust at a price of 99 million yuan, and the company will repurchase the relevant equity income rights one year later. These events were also interpreted by the market as YST encountering financial pressure.

The controlling shareholder intends to change to Zhuhai State-owned Assets

Not only that, the reporter also noticed that in the more than one year that YST was planning a major asset restructuring, major changes had occurred at the management and controlling shareholder levels of this listed company.

In June 2018, YST announced that in order to facilitate the company's financing activities and better train a new generation of managers, the company's chairman and general manager He Simu will resign from the positions of chairman and general manager and "hand over the baton" to his son He Jia.

In November 2018, YST received a notice from its controlling shareholder Yangzhou Oriental Group and actual controller He Simu that Yangzhou Oriental Group, He Simu and Zhuhai Huafa Group signed a "Share Acquisition Agreement", intending to first transfer the 29.9% equity held by Yangzhou Oriental Group and its affiliates to Huafa Group.

After the completion of this equity transfer, Huafa Group will acquire another 5% equity of YST through a partial offer. After the full acquisition is completed, Huafa Group will hold a total of 34.9% of the company's equity and become the company's controlling shareholder.

Prior to this, He Simu was the actual controller of YST, directly holding 320,000 shares of YST and 90% of the shares of Yangzhou Oriental Group. Therefore, He Simu directly and indirectly controlled a total of 1.3 billion shares of YST, accounting for 56.1472% of the company's total share capital.

According to the transfer agreement, Huafa Group intends to acquire a total of 813 million shares of YST held by He Simu and his persons acting in concert and other transferor shareholders at a price of 5.08 yuan per share, involving a total transaction amount of 4.127 billion yuan. The equity transfer is still in progress.

The Huafa Group, which is planning to take over this time, is no stranger in the capital market. It already controls three listed companies, namely Huafa Group, Huajin Capital and Huajin International Capital. Its business areas cover urban operations, real estate development, financial industry, industrial investment, commercial services, modern services, etc. Its business layout has expanded from Zhuhai to more than 50 major cities across the country, including Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Wuhan, as well as Hong Kong, Macao, San Francisco, Tel Aviv and other places.

Data shows that Huafa Group is the second largest state-owned enterprise group in Zhuhai after Gree Group. Since 2016, it has been listed in the top 500 Chinese enterprises for three consecutive years, and its latest ranking is 352. In 2017, Huafa Group had total assets of 220 billion yuan, total operating income of more than 45 billion yuan, total profit of 4.85 billion yuan, and net profit of 3.45 billion yuan.

Li Guangning, chairman of Huafa Group, once stated at the group's 2017 annual work conference that in the next three to five years, the group's development goal is to enter the club with operating income of 100 billion yuan and strive to build a leading enterprise with innovation-driven comprehensive urban, financial and investment operations.

This equity transfer will undoubtedly greatly ease the financial pressure on He Simu, but Huafa Group's entry is not unconditional.

The transfer agreement stipulates that after Huafa Group acquires the controlling stake in YST, it will continue to maintain the stability of the company's existing management, strengthen the corporate governance structure, and combine its strong advantages in urban operation resource integration and business layout resources to actively promote the company's business development in new energy vehicles and charging piles, high-end power supplies, data centers, smart cities & big data, smart energy, and rail transit intelligent power supply systems.

It is worth noting that the solar panels and solar cell businesses mainly engaged in by Ningbo Yize, the target of this restructuring and acquisition, are not among the above-mentioned supported development directions.